USD/JPY Daily Forecast: Fed and BoJ Policy Divergence Points to Sub-140

USD/JPY Drops to 141 on Monetary Policy Divergence

The USD/JPY slid by 2.66% in the week ending September 6. On Tuesday, September 3, the USD/JPY climbed to a high of 147.210 before tumbling to a Friday low of 141.763.

Q2 GDP Numbers to Set the Tone

It could be a pivotal week for the Japanese Yen as investors speculate about the timing of the next Bank of Japan rate hike.

On Monday, September 9, finalized GDP figures for Q2 will impact buyer demand for the USD/JPY pair. According to the preliminary report, the Japanese economy expanded by 0.8% in Q2 2024 after contracting by 0.5% in Q1 2024.

An upward revision to the preliminary GDP could boost demand for the Yen. A hotter-than-expected Japanese economy may raise investor bets on a Q4 2024 rate hike.

Beyond the headline GDP number, investors should also consider private consumption, a key driver for demand-driven inflation. According to the preliminary report, private consumption increased by 1.0% in Q2 2024 after falling by 0.7% in Q1 2024. Private consumption could further support expectations of a Q4 2024 BoJ rate hike.

Machine Tool Orders and Demand

On Tuesday, September 10, machine tool orders could reflect the demand environment. Economists expect orders to increase by 8.7% year-on-year in August, up from 8.4% in July.

Upward trends in machine tool orders may signal an improving demand environment, supporting a more hawkish BoJ rate path. Manufacturing could bolster the Japanese economy as it contributes around 30% to GDP.

Producer Prices Crucial for the Bank of Japan

On Thursday, September 12, producer prices will be a crucial data release. Economists predict producer prices will increase by 2.8% year-on-year in August, down from 3.0% in July.

Higher-than-expected figures could raise expectations about a possible Q4 2024 Boj rate hike. Producers increase prices in a rising demand environment, passing costs onto consumers. A more hawkish BoJ rate path may deliver price stability by raising borrowing costs and dampening demand.

Reuters Tankan Index and Japan’s Economy

On Friday, September 13, the Reuters Tankan Index will also draw investor interest. Economists forecast the Index to increase from 10 in August to 11 in September.

Upward trends in the Index would signal an improving macroeconomic environment. The Index considers business sentiment across the manufacturing and services sectors. Improving sentiment could signal rising employment, which may boost wages, possibly fueling consumer spending and demand-driven inflation.

The Bank of Japan and the USD/JPY Price Trajectory

Beyond the numbers, investors should also monitor for commentary from the Bank of Japan. Bank of Japan Board Members Nakagawa and Tamura are on the calendar to speak on Wednesday and Thursday, respectively. Support for a Q4 2024 BoJ rate hike could boost demand for the Japanese Yen.

Positive economic indicators from Japan and hawkish BoJ commentary could pull the USD/JPY below 140.

Bank of Japan’s Monetary Policy Stance

In August, Bank of Japan Deputy Governor Ryozo Himino bolstered bets on a Q4 2024 rate hike, supporting a rate hike if the economy and prices aligned with projections.

Overview of the US Dollar

Meanwhile, US economic indicators could influence the size of a Fed rate cut. A rise in expectations of a 50-basis point Fed rate cut could adversely impact US dollar demand.

The US CPI Report and a Sub-140 USD/JPY

On Wednesday, September 11, the US CPI Report could influence the size of a September Fed rate hike. Economists forecast the annual inflation rate to fall from 2.9% in July to 2.6% in August. Softer-than-expected figures may refuel investor bets on a 50-basis point September Fed rate cut.

A more dovish Fed rate path would narrow the interest rate differential between the US and Japan, possibly pushing the USD/JPY below 140.

Producer Prices: The Leading Indicator for Inflation

On Thursday, September 12, producer prices could signal the outlook for headline inflation and the Fed rate path. Economists forecast producer prices to increase by 2.0% year-on-year in August, down from 2.2% in July.

Downward trends in producer prices could signal a weakening demand environment, supporting a more dovish Fed rate path. Producers lower prices as demand weakens, dampening consumer price pressures.

US Jobless Claims: Another Crucial Data Release

The expectations of a softer inflation backdrop have shifted the market focus toward the US labor market. Last week, the US Jobs Report signaled a robust US labor market. On Thursday, initial jobless claims may further influence sentiment toward the Fed rate path.

Economists forecast initial jobless claims to rise from 227k in the week ending August 31 to 231k in the week ending September 7. An unexpected spike in jobless claims may retrigger investor fears of a hard US economic landing (recession).

Weaker labor market conditions could affect wage growth, possibly impacting consumer spending and the US economy. Private consumption contributes over 60% to the US economy. Furthermore, a spike in claims may raise investor bets on a 50-basis point September Fed rate cut and USD/JPY drop below 140.

Expert Views on the US Labor and the Fed Rate Path

AMP Head of Investment Strategy and Chief Economist Shane Oliver remarked on the US Jobs Report, stating,

“US Aug payrolls +142k,

Consumer Sentiment and Consumption

On Friday, September 13, the Michigan Consumer Sentiment Index will influence US dollar demand. Economists expect the Index to increase from 67.9 in August to 68.0 in September.

Upward trends in consumer confidence could indicate a pickup in consumer spending, possibly bolstering the US economy. Expectations of a resilient US economy may dampen bets on a 50-basis point September Fed rate cut, supporting US dollar demand.

Nevertheless, the inflation and labor market data will likely have more impact on the USD/JPY. Softer inflation and weaker US labor market data could push the USD/JPY below 140.

Short-term Forecast: Bearish

Near-term USD/JPY trends will hinge on US inflation and labor market data from the US. Rising expectations of a 50-basis point September Fed rate cut could push the USD/JPY below 140. However, economic indicators from Japan should align with forecasts to maintain the bearish outlook for the USD/JPY.

Investors should remain alert in a pivotal week for the USD/JPY pairing. Monitor real-time data, central bank views and expert commentary to adjust your trading strategies accordingly. Stay informed with our latest analysis and news to navigate the FX markets.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well below the 50-day and 200-day EMAs, confirming bearish price trends.

A USD/JPY break above the 143.495 resistance level could support a move toward 145. Furthermore, a return to 145 could give the bulls a run at the 145.891 resistance level.

Investors should consider the economic indicators from Japan and the US, and central bank forward guidance.

Conversely, a drop below the 141.032 support could signal a USD/JPY return to sub-140 levels. A fall through 140 could give the bears a run at the 137.712 support level.

The 14-day RSI at 32.08 indicates a USD/JPY fall to the 141.032 support level before entering oversold territory.